C8 GBI Good Governance February 2022 Monthly Report – Cirdan Capital
The ‘Good Governance’ certificate was steadily recovering from January’s sell-off but was hit once again as energy prices spiked following the Russian invasion of Ukraine. The certificate ended down 0.6% on the month.
We noted last month, that, both in and out of sample, there is only one equivalent drawdown, in Dec 2010 – Jan 2011, when there was a drop of 12.2%. We also noted that these losses proved only temporary and were fully recovered within 4 months. However, these remain difficult times for an ESG L/S strategy given the risks of the world’s 2nd largest gas and 3rd largest oil producer being excluded from the world energy market.
Importantly however, these ESG-related risks are balanced by many examples since 2007, where the ‘Good Governance’ portfolio of US stocks significantly outperforms during periods of financial market stress, as investment flows seek the safe haven of well-governed stocks. Whilst any long-term premia can have demanding periods, we remain convinced that ‘Good Governance’ will continue to perform over time.